Do Loosened Trading Rules Restore the Stock Index Futures Price Discovery Ability in China?

This paper investigates the dynamic changes in the price discovery ability and volatility spillover characteristics in the Chinese stock index futures market as trading rules were loosened step by step. The result shows that as trading restrictions were relaxed, the price discovery ability of the futures market was gradually restored and dominated the price discovery process. The futures market transmits greater returns and volatility to the stock market with the loosened trading rules. In general, we observe evidence of improved information transmission efficiency in the futures market as trading rules were loosened